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Massachusetts Securities Attorneys

Massachusetts Broker Fraud: Why You Need a Massachusetts Securities Attorney

Department building Investment fraud can happen anywhere. When it happens in Massachusetts, investors may find themselves in need of a Massachusetts securities attorney. One recent case of fraud illustrates the need for a securities attorney. On October 29, 2019, the Secretary of the Commonwealth of Massachusetts, William F. Galvin, fined Morgan Stanley and ordered the firm to pay back investors. What happened? According to a consent order entered into by the Massachusetts Securities Division and Morgan Stanley Smith Barney LLC, Justin Amaral (CRD#: 4440980) churned Massachusetts clients’ accounts. “Churning” occurs when a broker trades excessively in a client’s account in order to generate extra commissions. The Massachusetts Securities Division alleges that Morgan Stanley failed to properly supervise Justin Amaral, who at one point was designated “as the executor of the client’s estate and as a beneficiary of the client’s will.” On May 1, 2014, Justin Amaral “resigned at the start of an investigative interview.” In 2015, the Financial Industry Regulatory Authority (FINRA) barred Justin Amaral from the securities industry. While Morgan Stanley neither admits nor denies the allegations contained in the consent order, they will pay $182,500 to four investors, thanks to the aggressive enforcement by the Massachusetts Securities Division and the expertise of the claimants’ Massachusetts securities attorneys.

The Massachusetts Securities Division aggressively pursues brokers and firms that defraud Massachusetts investors. The above case, however, illustrates the importance of taking a multi-pronged approach to recovering lost funds. While the Massachusetts Securities Division enforces securities laws, only a securities attorney can recover investor assets lost to broker fraud. If you fear you may have been a victim of investment fraud, you may want to retain a Massachusetts securities attorney.

How the Massachusetts Secretary of State Holds Brokers Accountable and Protects Investors from Broker Fraud

The Massachusetts Securities Division provides investors with tools to protect themselves from fraud and enforces Massachusetts securities laws. An active and aggressive agency dedicated to investor protection, the Massachusetts Securities Division protects Massachusetts investors by working to “ensure a free and competitive securities market in Massachusetts, thereby increasing investor confidence, encouraging the formation of capital, and supporting the creation of new jobs in Massachusetts,” according to its website. Helmed by William F. Galvin, Secretary of the Commonwealth of Massachusetts, the Massachusetts Securities Division reviews securities offering documents, answers investor questions, and educates investors. The Division boasts an Enforcement Section dedicated to rooting out investment fraud, as well as a Registration, Inspections, Compliance, and Examinations (RICE) section and Corporate Finance section.

The Registrations, Inspections, Compliance, and Examinations (RICE) section oversees the registration of broker-dealers, brokers, investment advisors, and other investment professionals. RICE makes sure that broker-dealers have enough capital to operate and conducts comprehensive audits to ensure compliance with state and federal securities laws.

If RICE suspects that a broker-dealer or investment professional has violated state or federal securities laws, then the Enforcement Section opens an investigation into the alleged misconduct. The Enforcement Section actively pursues investment advisors suspected of committing financial fraud against Massachusetts investors.

On September 17, 2019, the Massachusetts Securities Division filed an administrative complaint against David Nichols, who allegedly sold $5 million in unregistered securities to 33 Massachusetts investors even after his broker registration had lapsed. He sold Secure Bridge Loans from the Woodbridge Group of Companies while he was a registered representative for SHP Financial LLC (though these securities transactions were not approved by SHP). When David Nichols left SHP to found his own firm, Frontier Advisors, Inc., he brought many of his clients with him. While peddling unregistered Woodbridge Securities, he received commissions directly from Woodbridge. The broker had to shift his strategy in 2015, when the Massachusetts Securities Division barred Woodbridge from selling unregistered Secure Bridge Loans. In 2017, the Woodbridge was accused of running a Ponzi scheme and filed bankruptcy by 2018. Yet these developments did not deter David Nichols, who then switched to selling a different unregistered securities product, one from Northridge Holdings, Ltd. But the Commonwealth of Massachusetts eventually caught up with David Nichols and his alleged scams and is currently investigating him.

On September 12, 2018, William F. Galvin announced another investigation. He is currently investigating the 63 broker-dealers that recommended private placements from GPB Capital Holdings. GPB is being accused of running a Ponzi-like scheme, and Massachusetts securities attorneys, along with securities attorneys from around the country, are currently representing defrauded investors who have invested in GPB.

In addition to its Enforcement program, the Massachusetts Securities Division also runs a robust Investor Education Program. The Massachusetts Securities Division circulates brochures (available as downloadable PDFs, or printed copies by request) about topics of interest to investors. Many of the brochures are jointly produced by the North American Securities Administrators Association (NASAA), the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC), and the Securities Industry and Financial Markets Association (SIFMA), these brochures cover a diverse range of financial literacy and investment topics. Certain brochures target the elderly (“Protect Yourself from the ‘Grandparent Scam’”), while others are trying to reach military servicemembers (“Help Combat Military Financial Fraud”). Other brochures include “Marijuana, Marijuana-Related Investments and Fraud,” “Ponzi Schemes in the 21st Century”, and “Eight Tips to Avoid Phishing Scams.”

The Massachusetts Securities Division also issues Investor Alerts to help investors avoid fraud. One Investor Alert cautions Massachusetts residents to beware of anyone claiming to hold a certificate allowing them to work as stockbrokers. The Division does not issue such certificates, which may circulate on social media.

The Division keeps abreast of the latest developments in the securities industry, keeping investors informed about any changes that could affect the status of the investments of Massachusetts residents. As of June 14, 2019, the Division is seeking public comment on a proposed regulation that would require all “broker-dealers, agents, investment advisers, and investment adviser representatives” to act as fiduciaries, putting their clients’ interests ahead of their own. The Division lists the many different cases of fraud they see that could potentially be avoided if a fiduciary conduct standard was adopted. The Division is especially concerned about:

  • Sales contests (in which salespeople compete to see who can sell the most securities)
  • Churning
  • Unsuitable sales of alternative investments
  • Sales of non-traded REITs (which are notoriously illiquid and not suitable for investors who want easy access to the cash value of their investments)
  • Failure to supervise

While the Massachusetts Secretary of the Commonwealth, William F. Galvin, is an aggressive and passionate investor advocate, his authority is limited. The Commonwealth of Massachusetts cannot recover funds lost through broker fraud; only a Massachusetts securities attorney can do that. Thus, if you suspect you may have been a victim of securities fraud, it is important to retain the counsel of a securities attorney.

Next Step: Contact a Securities Attorney

While investing can be exciting and a potential way to build wealth, it is important to stay informed about fraud so that you can protect yourself and safeguard your financial future.

If you fear you may have been a victim stock or investment fraud, please contact the experienced securities attorneys of Fitapelli Kurta. Our securities fraud attorneys have worked with investors from Massachusetts. Whether you’re Boston, Cambridge, Lawrence, Springfield, Newton, Lexington, Wellesley, Northampton, Fall River, or any other city or town in Massachusetts, we’re here to help you. We only get paid if you do. Our attorneys work on contingency: we only collect a fee from clients if we can recover money on their behalf. Call (877) 238-4175 or email info@fkesq.com for your free case consultation.